Payday-loan foes continue legislative attack

A client of Payday Money Center in Tustin makes a transaction. Payday Money Center is a payday lender. Such businesses are coming under increased scrutiny by both state and federal regulators.SAM GANGWER, ORANGE COUNTY REGISTER

Who is a payday borrower?

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Tristin Hernandez has a steady job in Irvine as a special education instructor, but he occasionally runs short on cash before his monthly paycheck arrives.

When that happens, there aren't a lot of options.

Last week, in need of a few hundred bucks to cover weekend expenses, the 26-year-old stopped by a Tustin payday lender, which offers short-term advances with annual interest rates sometimes in excess of 460 percent. Hernandez pays as much as $45 in fees for each loan, which he has been getting on and off since college.

"I'd heard that they're expensive," he said, "but if you're really in desperate need for that money, what's $45?"

Hernandez is one of nearly 2 million Californians turning to payday lenders each year as the annual market for so-called deferred deposit loans has ballooned to more than $3 billion. Orange County, in particular, has become an epicenter for payday loan growth, with 145 storefronts mostly clustered in low-income neighborhoods in Santa Ana and Anaheim.

With the growth of the payday loan market, lawmakers, regulators and consumer-rights groups nationwide have increased scrutiny of the industry, yet lenders in California have mostly avoided the severe limits put in place in many other states.

Last month, the industry won a key battle over a state bill that would have capped the number of loans a borrower could take out each year and extended repayment periods – changes some lenders say would have virtually killed payday lending in California.

The loan market has been propped up by steady consumer demand in an uncertain economy. The industry also has found support from California legislators, including state Sen. Lou Correa, D-Santa Ana, who last month was appointed chairman of the powerful Senate Banking and Financial Services Committee.

Still, opponents of payday lending say the movement to rein in the business is gaining momentum at both the state and federal level.

"We're not backing away from this fight," said Paul Leonard, California director for the nonprofit Center for Responsible Lending. "Payday lending reform is an issue that is not going away in California."

Young market

Payday lending is a relatively new practice in California. Lawmakers formally authorized the form of short-term credit in 1997; in 2003, the California Deferred Deposit Transaction Law became effective, which set licensing requirements and appointed the state Department of Corporations as the oversight agency.

The loans, which can be obtained with little more than a checking account and pay stub, typically must be paid back in about two weeks. Online lenders have begun to proliferate and a handful of banks offer such products, but much of the activity is handled through payday loan storefronts.

Because the businesses keep cash on the premises, some storefronts have become a target for thieves, who have even cut through roofs to plunder the loot. Many payday companies install safety glass and other security features.

Under California law, the total amount of a single payday loan transaction is capped at $300, while the fees on each transaction cannot exceed 15 percent. The amount a payday lender can hand out at one time, therefore, is about $255 once the 15 percent fee is factored in.

Mark Leyes, spokesman for the Department of Corporations, said the clear limits on the industry, combined with the regular audits of state-licensed payday lenders, amount to robust regulatory oversight. "It's regulated at least as strictly as other consumer lending and arguably more so," he said.

Dan Gwaltney, chief financial officer of Payday Loan LLC, the Anaheim-based operator of 19 area Payday Money Centers stores, noted that each location is required by state regulations to post prominent signs, with half-inch letters, explaining the fee structure for all loans, and explain to borrowers the legal extent to which the company can seek repayment.

"I'd love to be able to walk into a bank and get the same disclosures," he said. "There's a perception out there that the industry is not very well-regulated. That's not the case."

Still, California is far from restrictive. In an analysis of payday lending regulations by nonprofit organization Pew Charitable Trusts, California was found to be one of the more lenient states.

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A client of Payday Money Center in Tustin makes a transaction. Payday Money Center is a payday lender. Such businesses are coming under increased scrutiny by both state and federal regulators. SAM GANGWER, ORANGE COUNTY REGISTER
Vicky Haddad, a marketing associate with Payday Money Center in Tustin, performs a transaction for a customer. Payday lenders are coming under increased scrutiny by both state and federal regulators. SAM GANGWER, ORANGE COUNTY REGISTER
Payday Money Center in Tustin is a payday lender. Such businesses are coming under increased scrutiny by both state and federal regulators. SAM GANGWER, ORANGE COUNTY REGISTER
A large display of the fees for a short term loan from Payday Money Center in Tustin is right next to the company's business license and next to the main transaction window. Payday lenders are coming under increased scrutiny by both state and federal regulators mostly for the high interest rates they charge. SAM GANGWER, ORANGE COUNTY REGISTER
A customer talks to Vicky Haddad, a marketing associate with Payday Money Center in Tustin. Payday lenders are coming under increased scrutiny by both state and federal regulators mostly for their high interest rates. SAM GANGWER, ORANGE COUNTY REGISTER

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